Exchange traded funds that invest in securities which have a lower volatility than the market can help combat gyrations. Low-volatility ETFs, especially those that invest in foreign stocks, have been proven to limit downside movement when market volatility is high.
“The evidence is persuasive. Low-volatility stocks have performed about as well as their higher-volatility counterparts–much better, actually, in foreign markets–but, obviously, with lower volatility and smaller drawdowns. The phenomenon is robust to period and market, volatility measure, and other factors known to boost returns such as momentum and value,” Samuel Lee, ETF analyst, wrote in a recent Morningstar article. [Low-Volatility ETFs to Protect Against Market Gyrations]
The iShares MSCI All Country World Minimum Volatility (NYSEArca: ACWV) has garnered assets beginning from $30 million to nearly $300 million in a few months. The low-volatility strategy has produced superior risk-adjusted performances in Treasuries, corporates, and futures, reports Lee. [ETF Chart of the day: Global Low-Volatility Fund]
ACWV is an attractive ETF due to the application of a global low-volatility equity strategy without the worry of untimely liquidation. Also, low-volatility strategies have produced higher excess returns in more-volatile, more-heterogeneous, and, presumably, less-efficient foreign markets.